Archive for May, 2004

As foreshadowed, a major study (the Tambling Report) into the appropriate renewable energy target for Australia has now been released.

It’s a well-constructed analysis (300 pages) and anyone with an interest in wind energy should read it. See www.mretreview.gov.au

The report will knock the wind out of the flakier investment ideas. These extracts highlight the report’s no-nonsense style:‘Overall the Review Panel considers that the wind industry has a considerable task ahead if it is to become competitive as a renewable energy sector in its own right. This task may be helped by cost savings associated with local manufacture. However it is currently unknown what the national grid’s capacity will be to absorb significant quantities of intermittent generation’.

‘Claims of the potential for developing a major export industry are viewed with some scepticism. However the industry itself is adamant that opportunities exist…for most renewable energy technologies, at this early stage of MRET (mandatory renewable energy target, established by the Government) there is little evidence in Australia of exclusive intellectual property, significant research efforts, natural cost competitiveness or market advantages. Solar PV provides the only exception. Niche exports may become viable, but little evidence exists to date that the industry could be a major world player’.

HOPEFULLY the Danes are not reading the Tambling Report.

Some background:§Vestas (the Danish turbine manufacturer) has a preminent position in Tasmania and is strong in SA. Enacon (USA) is strong in WA, and NEG Micron (also Denmark) is strong in Victoria, NSW and Queensland) There are 5-6 other manufacturers, including GE, all chasing market share.§The turbine industry is very competitive, and IP and scale economies are critical.§Vestas had established an assembly plant at Wynyard, near Burnie (NW Tasmania) and has undertaken feasibility studies to establish a blade manufacturing plant there. This would deliver real value adding, but substantial throughput is required.

‘Two of the largest wind turbine manufacturers plan on combining their operations into one powerhouse Danish wind energy company, gobbling up 35 percent of the worldwide market, employing 8,500 people and boasting anticipated 2004 sales of EUR2.7 billion (US$3.31 billion)…citing size, technological know-how and development as well as financial strength as the major prerequisites for growth and long-term survival in today’s highly competitive international wind market, Denmark-based Vestas and NEG Micon will become one wind power entity offering a variety of multi-MW wind turbines for the world market.

What’s this all mean?1.The Danish conglomerate may now have sufficient throughput to justify a blade plant in Australia.2.It is now an in-house decision as to whether it is Wynyard or Portland (it could be both, or both could miss out!).3.Serious manufacturing capacity might create the required bridge to local research effort.4.It may trigger further joint ventures across the Asia-Pacific region.We believe the real potential in wind energy is in areas where it’s non-economic to connect to the main electricity grid, and hence the main scope is in remote communities, islands etc.

The National Dialogue on Entrepreneurship (in USA) recommends a new report from the Kellogg Foundation called ‘Mapping Rural Entrepreneurship’.

It is indeed worthy of attention. It provides a map of the current state of entrepreneurship in Rural America and offers guidelines for expanding this activity. The 60 page report includes case studies of ongoing projects in Kentucky and Nebraska.The study says a new framework is needed to animate people and institutions around four principles:

§Community driven e.g. tools/resources to build on assets, make right choices, learn from others.§Regionally orientation e.g. cooperation to achieve scale and resources.§Entrepreneur focus e.g. systems thinking to link information with peoples’ needs.§Continuously learning e.g. entrepreneurship as part of the school curriculum.

We went into nostalgia mode recently, and wrote the following article for the ‘Good Oil’ column in Local Government Focus magazine in Australia. If you have similar character-building episodes to relate, let’s hear them!

I sensed it was a set-up when I arrived because the car parks were full.

It was 1995, in Hall’s Gap in western Victoria. The federal government’s regional development program was in full swing. Regional stakeholders were being encouraged to think expansively, and the seminar was to bed down the Greater Green Triangle concept, a cross-border region taking in Colac, Warrnambool, Hamilton, Portland, Mount Gambier, Naracoorte etc.

The locals reckoned they’d met these requirements, and now they wanted action, specifically the MONEY! So my presentation about federal objectives and guiding principles went down like a lead balloon. The audience made jibes about ‘pie in the sky’ ideas of the Whitlam era, bureaucracy gone mad, con jobs, snail’s progress etc. On reflection, it was fair comment. Thank God the chairs were bolted to the floor.

The SA Government official spoke after me, with equally disastrous results – no, worse results. He was told to get back over the border and stay there! The crowd was not in the mood for cross-border rhetoric.

Next up was the Victorian Government’s key executive on regional development (who holds the same position to this day). He had the advantage of speaking last, and made the right soothing noises. He confided to me later ‘don’t forget Rod, this region thinks it invented regional development!’

A local champion explains further.

‘Well, Canberra reckoned that the boundaries should extend to Geelong or Ballarat, with either of those cities as the hub. Everyone in the region had been fighting this for years…no one was listening and we were about to get seriously marginalised…we had spent 18 months getting ground level agreement on where the boundaries roughly should be, and we had some person from Canberra drawing lines on a map…I think someone in the region was stirring the pot too…he was good at loading guns and handing them out’.

Lessons? Beware of full car parks, matrix management in bureaucracies and hungry stakeholders.

Regular Canadian correspondent, Philippe Roy, has gone into overdrive with some interesting ideas for wine industry development.

Dear Rod,

I am writing with regard to reports that the Australian wine industry is facing an over-production challenge.

About two years ago I read a report on the Australian wine clusters with comparisons with America and France. It was a superb report, full of good information. The Australian government should now update this report on a vitally important industry sector. (Thestudy was by Prof. Ian Marsh – Editor)

While not knowing all details of the problem, may I offer a few suggestions and comments.

1. Maintain the international brand image of Australian red wines as a vastly superior product compared with nearly all other red wines globally – full bodied, loaded with friendly tannins, diverse and sophisticated mature fruits, excellent nose, long lingering finish.

3. Pioneer new market entry points. Some countries (e.g. Canada) permit importing and blending of foreign wines into domestic products. This would permit bulk tank exporting to such intermediate consumers. Canada has a tradition of excellent winemakers of German heritage who make top quality blended wines – so does Australia. Perhaps the two sides could be connected profitably?

4. Reduce the landed price in Canada. Shipping already bottled wine must add about $2 per bottle here. I suggest Australia should ship wine in bulk, and contract for bottling here.

5. Penetrate global markets at key transaction points for affluent consumers. Get top quality Australian wines into the duty free airport stores. Provide a free booklet on gourmet cooking, for accompanying meats, fishes, fowl, cheeses, etc. Follow-up with same brands to retail markets where air travel clients live, so that they can repeat the purchase…related press stories in Saturday edition newspapers, and at liquor stores. This is a market penetration and re-enforcement strategy.

6. Penetrate international airline flights with Australian wine…follow the Air France practice of giving away ½ bottles or ¼ bottles – to drink in their hotel rooms, or to give to as a gift to a host.

7. Look longer term at countries such as China…develop special, highly conspicuous brand marketing to these newly affluent consumers, and add gourmet wine and food distributorships in key shopping districts, using Chinese agents, well-trained, with Australian co-partners for the early years, so that they get it right. Ultimately, the Chinese vendors will want control, but Australians can help to co-develop.

8. Seek joint ventures with the beef industry in Canada and USA, or Europe, for the barbeque season. North Americans love to barbeque, and Cabernet Sauvignon is a natural complement. Australian wine retailers could do JV on marketing and advertising…fresh lamb and a fruity Shiraz are natural complements…for our winter months, strategic alliances could be formed with Canadian cheese and pate producers, with support demonstrations in liquor stores and food shopping establishments.

9. Develop a uniform high level of quality, such as Australian Vintner Quality Mark (AVQM) with a distinctive gold brand, perhaps with a golden kangaroo and AVQM embossed on the top foil wrap. Develop a professional cadre of Australian wine ambassadors and cooks to tour the world putting on wine events, tastings, wine and food parties, wine & food cooking demonstration courses, parties.

These are my best global marketing strategies for the Australian wine industry and wine cluster at present. Use them in good health.

A storm has erupted following calls by a group of Canberra developers for controls on the growth of office accommodation at Canberra Airport.

This is shortsighted stuff, and potentially very damaging to Canberra.

Regional development experts all over the world agree that well-planned airports with business parks can be powerful magnets for inwards investment and cluster development. This is exactly what is happening at Canberra Airport – similar effects have been seen in Cairns, Melbourne, Perth, Sydney and Brisbane. Perhaps Adelaide hasn’t yet got it together?

Anyway, sanity must prevail in Canberra because the ACT Government’s own White Paper (released late 2003) recognises the airport’s role as a generator of employment and a regional hub. It has growing economic spin-offs to the Riverina and south coast of NSW.

The White Paper also recommends that ‘the commercial success of the Airport sets a benchmark for the ACT Government in providing the same commercial environment for investors in other areas’. This is actually a very smart way of looking at things. In other words, learn from the successes and replicate them, rather than throttle things that actually work!

This mentality should apply in any location or circumstance unless there are factors otherwise undermining the public good.

The Progressive Policy Institute in the USA says small business and entrepreneurship advocates have long talked about new ways of promoting rural development.

Reliance on agricultural subsidies and other traditional strategies will no longer suffice – new models and approaches are required. The PPI has released a report (flagged by the NCOE) that argues rural America is being left behind as other regions of the country prosper. ‘Rural regions can rebound if rural development policies are brought into the information age. Thus, agricultural subsidies should be reduced and funds for rural development should increase. Savings from reduced subsidies should be invested into a new Rural Prosperity Corporation, to boost the competitiveness of rural economies. In addition, where possible, government activities should be moved to rural areas from high cost metropolitan regions’. ‘Reversing Rural America’s Economic Decline: The Case for a National Balanced Growth Strategy’, by Robert D. Atkinson, www.ppionline.org/ppi_ci.cfm?knlgAreaID=107&subsecid=123&contentid=252381

Adelaide-based Hugh Forde, respectfully known as our Irish philosopher, manages the Business SA cluster program. Here he argues that people often want to collaborate, but don’t know how.

Leading edge literature and experience is maturing the thinking advocated 30 years ago by Arias De Geus.

He pioneered the concept of scenario planning (with Shell Oil) which was the first attempt to break out of the traditional straightjacket of strategic planning. He postulated ‘what if’ in a wider dimension than the hitherto rational and linear thinking model allowed.

In other words, he widened the context, not confining it within the paradigm of competition or even competitive advantage. This enabled him to view content from a different perspective. This in turn released creative imagination that, of course, is the source of all innovation.

New approaches to product and market development and organisation modeling quickly resulted from the change in thinking. This was the first movement towards seeing business as part of a living system behaving and evolving in the same way as living systems do.

His book ‘The Living Company’ has become standard reading. Margaret Wheatley and others have been developing the notion of business ecology for the last decade and a half. Her book ‘Leadership and the New Science’ is also a standard.

What has this got to do with starting clusters? Well, I want to make the point that the cluster process is such a simple model that it is only matter of finding a few like-minded people who want to come together to expand their vision beyond their current industry situation.

A cluster or group of like-minded people can be found in existing industries in transition, emerging industries and industries that are indigenous to the area.It is therefore not a matter of management, or lack of intent to work together, that are barriers to successful collaboration.

The barrier is the ABSENCE OF COLLABORATION SKILLS, MINDSETS AND BEHAVIOURS needed to sustain the initial effort, and allow the time to build the trust, rapport and respect of each other that are the true building blocks of achievement and sustainability.

The project I am facilitating in South Australia learned this from tacit experience in developing a portfolio of eleven clusters over the past 7-8 years. We have thus developed a living systems approach to collaboration, and are applying it with considerable effect to a number of clusters.

The structure we have (Collaborative Innovation System – CIS) comprises discrete but integrated strategies to ensure engagement and innovative collaboration. These are proprietary models that have universal application.

Chris Lipscombe, Film and Creative Sector Manager at Smart Wellington, has kindly explained the genesis of the creative industries strategy in Wellington. Main message – think long-term!

The recent explosion in creative activity from Wellington is no flash in the pan.

Since the early 1990s, central and local government has been working with local businesses to identify and build on the work of talented individuals in the region, and to take their creativity to the world.

Positively Wellington Business, the EDA for the Wellington region, builds on these early efforts in fostering the growth of local creative businesses. Some of the ways we do this are through support of the regional film office Film Wellington, the establishment and support of business incubator Creative HQ, and the facilitation and support of an export-focussed cluster, Creative Capital.

Film Wellington performs a dual role of supporting film-makers (through granting of consents to film, access, etc) and working with other film offices and Film New Zealand in promoting the region’s locations and capabilities. This program has been in place since 1993, with the strong support of Wellington City Council, and has been enormously successful in streamlining the process of filming in the city and region and increasing the region’s attractiveness to film-makers.

Business incubator Creative HQ focuses on identifying and nurturing small start-up companies in the creative technology industry, through a combination of subsidised rent and services, advice and mentoring support, and access to specialist skills and investment.

Formally launched in 2003, the incubator is now completely full with 16 companies in residence, and the first of what will be several spin-off or satellite incubators has been launched as a home for emerging fashion designers.

A successful collaboration in the design and fabrication of NZ’s National Museum Te Papa Tongarewa has led a number of Wellington-based firms to go to market internationally under the brand Creative Capital.

Networking meetings in 1997 created the impetus for the preparation of a joint showreel highlighting the range of talents and experience available from the collaborating companies. With the support of the then Trade New Zealand, the cluster identified Singapore and Hong Kong as primary target markets, and set up a local company in Singapore. With project revenue of $5 million already under their belts, the companies in the cluster are now looking forward to growing their markets and the range of products they can deliver offshore.

China has become the manufacturing power-house for the world, and an increasingly manufacturers in the developed nations are outsourcing their production to China.

This raises many risks and a survey shows more than 50% of manufacturers of consumer goods in China are not making money, due to:

§over-extending to unfamiliar provincial locations not yet suitable for such operations.§chaotic and fragmented local markets with huge differences from one place to another.§price differences in rural locations where incomes and purchasing power were significantly different.§variations in competition in different regions of what is a vast country.

John Blunt of Pan-Asia Business (Melbourne) suggests that if a company wants to ride the tide of the global supply-chain shift to produce in China, there must be detailed due-diligence investigations on partners, suppliers, distributors and employees, and consideration given to:§the risks, pitfalls, tips and traps of doing business in China.§Supply Chain issues including distribution, logistics and sub-contracting.§evaluation, selection and ongoing performance measurement of suppliers.§supply base optimization.§negotiating and managing supply contracts.

Our US colleagues advise of a major report by Deloitte Consulting ‘Manufacturing Pennsylvania’s Future: Regional Strategies that Build from Current Strengths & Address Competitive Challenges’. Prepared for Pennsylvania’s Industrial Resource Centers & Pennsylvania Department of Community and Economic Development.

It provides a comprehensive look at leading manufacturing clusters.There is a huge amount of data, and includes illuminating insights into how rapid technological change and globalization are buffeting manufacturers e.g. it finds that SMEs would benefit from assistance with business strategy, an area typically downplayed in economic development programs.

At the same time, firms will no longer be able to prosper via process innovation e.g. becoming cheaper and more efficient – while this strategy worked in the 1990s, firms must begin introducing new products into the market and capturing important market niches.